Probably the simplest definition around:
LAN: Local Area Network (LAN) is a computer network covering a local area, like a home, office or small group of buildings such as a college.
Source: Wikipedia; http://en.wikipedia.org/wiki/LAN
With that in mind, you can now have some grasp of the handiness of such a "network". Another example not mentioned is the fact that, with LAN, one could play multiplayer PC games together/against anyone else connected to the same LAN; in most case, games have a seperate option for just that.
To set up a LAN, you must first realize (if you have somehow managed NOT to so far) that you need more than one computer for this to be completed correctly.
No, on to the steps:
1. Open your Start Menu; if you have the Settings directory in the immediate toggled menu, continue from here - otherwise, refer to the below sub-steps to reach step 2.
2. Once you've clicked on Settings, click on Control Panel, which should pull up a window with your computer's main settings.
3. In the Control Panel, locate Network Setup Wizard; pull up that setting.
4. A Wizard program should have opened, now allowing you to configure your LAN among your computers.
5. Complete the Wizard accordingly; if you are unsure, the Wizard should have examples of each option it gives.
6 (Optional). To see that you have correctly completed the LAN set-up, you can refer to the Network Connections setting, which should also be located in the Control Panel.
There you go! You should now have a complete LAN set up. All that is necessary for you to do now is to repeat the same steps on the other computers you wish to set up the LAN for.
Alternate Step 1. If you do not have the Settings option in the Start Menu, no worries. Probably the simplest way to show you how to reach the Settings/Control Panel, go to your My Computer or equivalent; Locate the Control Panel there or simply click the drop-down menu and you should be able to find it there.
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If you have any more questions, either reply here or PM me.

